Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. fell in a ranking of Asia-Pacific's biggest banks by market capitalization after their stock prices dropped along with the Nikkei 225 index in the quarter ended Sept. 30.
Mitsubishi UFJ Financial fell to eighth place from seventh, as its market capitalization shrank 16% in the quarter to $118.27 billion. Sumitomo Mitsui Financial dropped two notches to 13th place after a 15.2% decline in its stock price, according to S&P Global Market Intelligence data. The decline in the Japanese megabanks' stock prices was part of a broader market downturn, fueled by concerns over the US economy and changes in Japan's monetary policy.
The Nikkei 225 index fell 4.2% in the quarter, dragged by a decrease of more than 12% on Aug. 5.
Japanese bank stocks followed the Nikkei 225, which plummeted on the Bank of Japan governor's hawkish monetary policy stance to keep raising interest rates, said Tomoaki Kawasaki, an analyst at IwaiCosmo Securities.
"Usually raising interest rates should be supportive of banks but such a positive factor was erased by a plunge of the overall Japanese stocks," Kawasaki said. In addition, the analyst said growing expectations at that time about a US rate cut pushed down Japanese interest rates, attracting investors shifting from Japanese stocks.
Looking ahead though, Kawasaki expects Japanese bank stocks to remain steady or even gain during the rest of the year.
Japanese commercial banks are resilient to recent market volatility, according to a S&P Global Ratings report published Aug. 19.
"The impact of stock market volatility on the risk-adjusted capital (RAC) ratios of rated commercial banks is muted, in our view," Ratings said. "For every 10% decline in the Nikkei Stock Average, the RAC ratio would fall by about 10 basis points on average."
Chinese banks in the lead
Mainland Chinese banks nabbed eight slots in the ranking of the region's top 20 banks, the most from a single market, all registering quarter-over-quarter increases in market capitalization, Market Intelligence data showed. Industrial and Commercial Bank of China Ltd. ranked first as its market capitalization grew 9.5% to $289.37 billion as of Sept. 30. Agricultural Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. took the next three top slots.
The share price increases were in line with performance of the country's broader banking sector. The Hang Seng China A Banks Index, which reflects the overall performance of bank securities listed in mainland China, rose more than 8% in the quarter.
Analysts expect Chinese equities to move higher in the short term, given the government's recent stimulus measures, including cuts to interest rates and bank's reserve requirement ratio, as well as support measures for the property sector.
"Chinese equities can continue to move higher in the short-term on the back of the liquidity/sentiment boost," Eileen Ma, portfolio manager of multi-asset portfolio solutions at Eastspring Investments, said in a Sept. 24 report. "However, evidence of a real improvement in fundamentals will be needed to sustain a medium to longer-term uptrend."
The People's Bank of China on Sept. 24 reduced its benchmark interest rate and reserve requirement ratio for banks, among other measures, to support the economy.
The ranking also featured five banks from Australia, three from India and one each from Singapore and Indonesia.
The market capitalization of Australia's Westpac Banking Corp. grew the most quarter-over-quarter, increasing 15.6% to $75.56 billion. In addition, the market capitalization of Macquarie Group Ltd., a new entrant on the ranking, clocked in at $58.52 billion as of Sept. 30 after expanding 13% in the quarter.